Bloomberg News

Sprint May Get Short-Lived Boost From T-Mobile Deal Snag

September 01, 2011

(Updates with closing share price in fifth paragraph. For more on the AT&T/T-Mobile deal, EXT6 <GO>.)

Sept. 1 (Bloomberg) -- Sprint Nextel Corp. may get a short- lived boost from the government’s attempt to bar AT&T Inc. from buying T-Mobile USA Inc.

A blocked deal would keep AT&T from becoming a stronger competitor in the wireless market, though it wouldn’t help Sprint tackle the bigger challenges it faces as the unprofitable No. 3 U.S. mobile-phone carrier.

An independent T-Mobile is likely to keep undercutting rivals with lower prices, analysts at Barclays Capital said. What’s more, Sprint would have a hard time funding its own purchase of T-Mobile or getting regulators to sign off on the deal after they said no to AT&T, said Kevin Smithen, an analyst at Macquarie Securities USA Inc. in New York.

“We’re surprised Sprint shares are up,” Smithen said of the 5.9 percent rise in the company’s stock yesterday. “Sprint does not have the liquidity to go out and buy T-Mobile. T-Mobile needs investments in spectrum and network. Sprint has its own cash requirements in spectrum and network.”

Today, Overland Park, Kansas-based Sprint fell 2 cents to $3.74 at 4 p.m. on the New York Stock Exchange. The stock, which surged as much as 9.9 percent yesterday after the government’s plans were announced, has declined 12 percent this year.

Sprint Chief Executive Officer Dan Hesse had been lobbying U.S. regulators to block the acquisition for being anti- competitive, and he has made regular trips to Washington since the deal was announced in March.

‘Great News’

A combined T-Mobile and AT&T would leapfrog Verizon Wireless to become the biggest U.S. wireless provider. AT&T is the second-largest mobile-phone carrier by customers, and T- Mobile ranks No. 4. Sprint petitioned the Federal Communications Commission in May to reject the deal on grounds that it would decrease competition and raise consumer prices. Sprint has said it would struggle to offer competitive pricing and cutting-edge technology if the proposed acquisition is completed.

Besides keeping AT&T from bulking up, the potential blockage also makes it easier for Sprint to snag T-Mobile customers concerned about their carrier’s fate, said Michael Mahoney, senior managing director of Falcon Point Capital LLC.

“It’s great news for Sprint,” said Mahoney, whose firm is based in San Francisco. “It raises questions for everybody, especially T-Mobile customers, on what’s going to happen.”

Still, Sprint needs to make upgrades and acquire wireless airwaves to improve its network and call coverage to keep from losing more customers. The company discussed buying T-Mobile, a unit of Deutsche Telekom AG, before AT&T clinched the agreement.

Sprint-T-Mobile Alliance?

Sprint hasn’t had a profit since the third quarter of 2007, and it has lost 215,000 customers on monthly contracts since the beginning of the year.

To turn AT&T’s misfortune into its own advantage, Sprint would have to strike an agreement that lets its customers use the T-Mobile network, James Ratcliffe, an analyst Barclays Capital in New York, wrote yesterday in a research note.

The attempted block is “potentially positive for Sprint, but only if it means a Sprint-T-Mobile alliance,” Ratcliffe wrote. “Should Sprint be able to complete a network-sharing deal with an independent T-Mobile, that would be a positive, but an independent T-Mobile, with continued aggressive pricing, would not help Sprint’s competitive position.”

After standing in the way of AT&T’s planned deal, U.S. regulators would be unlikely to let Sprint turn around and buy T-Mobile.

The stance will make it harder for companies to make a case for large, complex mergers in the telecommunications industry, said Henry Levine, a partner at Washington-based law firm Levine, Blaszak, Block & Boothby LLP, which represents large companies in telecommunications cases.

“It’s a line in the sand,” he said. The suit signals “you cannot buy one of the major players in the market,” he said.

--With assistance from Crayton Harrison in Mexico City and Jeff Bliss and Sara Forden in Washington. Editors: Tom Giles, Nick Turner.

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.


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